There is one instance where a stop-loss order can be used to advantage, and that is near the top of a bull market. It is impossible to tell when the market has reached the top. If you sell out too soon, you may lose a profit of several points. Of course, it is better to do that than to take a chance of a large loss. In that case, you might instruct your broker to place a stop-loss order at two or more points below the market, and keep moving it up as the market price moves up. Then when the reaction does come, he will sell you out and prevent you from losing a large part of your profit. That is about the only instance where we recommend a stop-loss order, but we do recommend it to our clients sometimes, although seldom.
If the stock you own is selling at more than 100 we would suggest that you make the stop loss order at least three points from the market, but for stocks selling below 100, a two-point stop-loss order might be used. However, the number of points should be decided upon in each particular case. In the special instructions to our clients, we tell them when we think they can use a stop-loss order to advantage.
PART FIVE
CONCLUDING CHAPTERS
CHAPTER XXII.
THE DESIRE TO SPECULATE
It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.
An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers. Many inventors spend the best years of their lives in poverty and never succeed. We hear a great deal about some of those who do succeed, but very little about those who fail—those whose speculations were unsuccessful—except when somebody accuses them of being crooks because they solicited money for the promotion of their inventions and did not succeed.